Crypto ETF launches could hurt assets’ price potential, analysts say

The introduction of ether futures ETFs might reduce market volatility, but could also dampen ether’s performance potential. Bloomberg Intelligence analysts suggest that such a trend typically emerges as an asset class matures.

Spot bitcoin ETFs could do the same for bitcoin if the US Securities and Exchange Commission approves such products — just as the futures contracts of crypto’s two largest assets have done in recent years.  

“It’s not unusual for high volatility and performance to subside in a nascent asset class as it migrates into the mainstream,” Bloomberg Intelligence’s Mike McGlone and James Seyffart said in a Wednesday research note. “Bitcoin and Ethereum US futures and [ETF] launches may continue the trend of squashing volatility and marking price peaks, particularly in an unfavorable liquidity environment.”

Fund groups VanEck, ProShares and Bitwise launched a combined six funds that invest in ether futures contracts on Monday. Competing firm Valkyrie added ether futures exposure to its Bitcoin Strategy ETF on Tuesday. 

Since ether futures started trading in 2021, the asset’s 260-day volatility has fallen from about 80% to just below 40%.

The first closing price of ether futures listed on the Chicago Mercantile Exchange (CME) that year was $1,752, the analysts wrote. The fact that price is about equal to its high in the first week of October “may have bearish implications for the crypto,” the Bloomberg Intelligence analysts said.

Ether’s (ETH) price was at about $1,645 at 5 pm ET on Wednesday. 

“The No. 2 crypto was on an upswing in 2021 and liquidity was positive,” McGlone and Seyffart noted. “Both have reversed.”

Ether futures ETFs could offer a short-term price boost, but allow greater access, “squashing volatility and performance potential,” they said.

“Sustaining above the 100-week mean at about $2,000 would be an initial sign of strength,” the Bloomberg Intelligence analysts added. 

Bitcoin ETF impact on volatility

The SEC is currently reviewing planned spot bitcoin ETFs — a type of fund some believe could see approval by early next year after Grayscale Investments’ court win against the regulator in August. 

Firms, including Ark Invest, VanEck and Invesco have also submitted spot ether ETF proposals. 

Bitcoin’s (BTC) annual volatility has dropped from about eight times the Nasdaq 100 stock index in 2017, when bitcoin futures started trading, to about two times the index today. 

“The long-awaited advent of spot bitcoin ETFs in the US come at a time when liquidity remains negative and risk assets face drawdown potential amid the risk of a global recession,” McGlone and Seyffart wrote. “When plugging bitcoin into most value-at-risk models, the facts of flat performance for about the past five years and more risk may weigh on reallocation decisions from equities, made easier via spot ETFs.”

The average daily price change for bitcoin has dropped from 2% two years ago to less than 1% now, according to Ruslan Lienkha, chief of markets at YouHodler.

“The current interest of financial institutions in crypto is just another iteration in the process,” Lienkha told Blockworks. “But the process started several years ago when the first crypto funds and firms appeared in the market, joining individual crypto enthusiasts.” 

Institutional investors, particularly those in the wealth management segment, still face barriers to accessing bitcoin, said Alex Thorn, head of research at Galaxy Digital.  

“Increased market access for institutions, facilitated by vehicles like ETFs, will enhance liquidity in bitcoin spot markets and, consequently, play a role in diminishing overall volatility over time,” he said.

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